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Month: January 2018

Forgive me here for talking my book this week. I am long biotech innovation and uranium miners these days and want you to be aware of that before you dig into the third installment of Would You Like To Know More.

SPDR’s Biotech ETF XBI which is weighted to include more speculative small and mid cap biotech companies surged to fresh ATHs. The move came after news that JUNO and BIVV were being bought out for what this author believes are absurd prices. BIVV was bought out for 10x annual sales. Yes the sales are growing and the company will likely do some price hikes once they get their hands on the drugs, but the field in which BIVV’s drugs compete is quite crowded. This kind of crazy deal making has set the market ablaze.

For now M&A may be driving renewed sentiment in the space, but a weaker USD also makes domestic biotech companies more attractive for foreign acquisitions. We’ve already see Chinese biotech companies sign a multitude of licensing deals with US biotech companies and Sanofi, who acquired BIVV, is a French company. But the most important long term of this space, that has yet to fuel a stampede of generalists is innovation, and we think it’s coming, in a big and yugely way.

2. Are US Uranium Producers Set To Benefit In The Trump Era?

Hmmm, interesting to see tariff on intermittent power that’s single digit percent of power generation , not a stretch to see accommodations for base load power that’s 20% of electric grid and is reliant on former Soviet states for 40% of #uranium#nuclearhttps://t.co/WlBSQvfg1K

Trump announced some minor tariffs this week on solar panels. Mike here notes that this is a boost to domestic US “energy” companies and that uranium could easily fall in this wheelhouse. US imports +90% of its uranium required to satiate its aging power plants. Recently Energy Fuels Inc. a domestic producer of uranium with multiple US located mines ready to go into production, is trying to invoke on the grounds of national security that the US secure a consistent supply of domestic uranium.

Given that Uranium fuels 20% of the electric grid, it’s not unreasonable at all. And more importantly, with uranium supply under contract (shown below) at US utilities falling sharply over the next few years it’s a realistic possibility.

It’s not too difficult to make a physical qubit these days, D-Wave has strung together thousands of them. The trick which has evaded and continues to evade scientists is keeping the qubits stable throughout the computation and measurement processes.

The man who invented D-Wave’s qubits (classical sized superconducting loops) did not even bother to patent the technology because he believed the interference would be too high. Ironically, the scientist was right about the high levels of interference, but D-Wave was still able to use these qubits, as they put it, “to find a better answer faster.” D-Wave has sold and shipped its systems to the likes of NASA, VW and others.

In order to correct for these massive swings in interference, D-Wave needs to build in orders of magnitude more qubits to error check the other qubits. Or said another way, it takes 100s of physical qubits to create a single logic qubit. Although D-Wave says its system has 2000 “qubits” the majority of these qubits (~99%) are used to reduce the error of the final result. Adding these extra qubits requires more computing resources algorithms and energy to process and still your answer will likely have to be rechecked a few times. In short, the stability of the individual qubits remains a major major problem.

Microsoft, it seems, has figured out a way to create much more stable qubits than anyone else can. Researchers at the company have developed topological qubits which are much more stable than any previous iteration. Many scientists have actually questioned whether or not these qubits are even real… Here’s an excerpt from the article which was written in 2016 (my emphasis in bold):

“IBM, Google and a number of academic labs have chosen relatively mature hardware, such as loops of superconducting wire, to make quantum bits (qubits). These are the building blocks of a quantum computer: they power its speedy calculations thanks to their ability to be in a mixture (or superposition) of ‘on’ and ‘off’ states at the same time.

Microsoft, however, is hoping to encode its qubits in a kind of quasiparticle: a particle-like object that emerges from the interactions inside matter. Some physicists are not even sure that the particular quasiparticles Microsoft are working with — called non-abelian anyons — actually exist. But the firm hopes to exploit their topological properties, which make quantum states extremely robust to outside interference, to build what are called topological quantum computers.”

And actually if you go back to 2014, Microsoft researcher, Krysta Svore, talks about all the challenges they will have to overcome in the next few years. To see how far they’ve come in such a short period of time is truly remarkable.

This interview is from 2014. Worth a watch to see the amount of progress that has been made. In the past 3 years. https://t.co/xJgDancMaM

DISCLAIMER: This blog is the diary of a twenty something millennial who has never stepped foot inside a wall street bank. He has not taken an economic or business course since high school (which he is immensely proud of) and has been long gold since 2012 (which he is not so proud of). In short his opinions and experiences make him uniquely unqualified to give advice. This blog post is NOT advice to buy or sell securities. He may have positions in the aforementioned trades/securities. He may change his opinion the instant the post is published. In short, this blog post is pure fiction based loosely in the reality of the ever shifting narrative of the markets. These posts are meant for enjoyment and self reflection and nothing else. So ENJOY and REFLECT!

“I have lived in Beijing for more than 20 years, yet only in the past year have I felt on returning to London or Silicon Valley that I’m going backwards in time. For urban residents, China is increasingly a study in frictionless living. Hopping on a bike, ordering a meal from a huge range of restaurants, paying for utilities, transferring money to friends — all can be done at the touch of a button. Internet services in the west offer increasing convenience no doubt — but nothing beats the experience in China.”

China is leveraging technology more effectively than any other nation on earth apart from perhaps Latvia. China’s ability to leverage technology to engineer growth and delay a “beautiful deleveraging” becomes clearer by the day. Chinese workers have started to vote with their feet. Despite the chemically toxic atmosphere (which by the way is slowly improving), Chinese workers are returning home to participate in China’s booming innovation.

The holy grail in the driverless car industry is a cheap Lidar system. The first systems cost $75K. Now at CES, due to competition, they could be as low as $100. So low that some are looking to "the next big thing": multi-spectral systems. https://t.co/SYlwFmc528

Tech is one of the most important and overlooked macro factors today.
*Pounds the table*
Within 10 years, autonomous vehicles will unlock a multi trillion dollar industry that had not previously existed. Autonomous interconnected vehicle fleets will dramatically lower the cost of driving, reduce traffic accidents, etc. you get the point, it’s fantastic and it’s not here yet but one of the things that will get it there cheap LIDAR already is or will be in a few years. The cost has already fallen 10x in the past 2 years and is expected to fall by another factor of 10 by 2020.

3. Doom and Gloom at the World Bank

The “experts” didn’t see the 4th Turning coming. It’s entirely possible they’ll miss it as the storm clouds clear. https://t.co/zQksH7deJq

Permanently lower your hopes for the global economy, the World Bank says

Despite global GDP in 2017 beating the IMF’s expectations for the first time since the crisis, institutions remain incredibly bearish on global growth. Like the so called “goldilocks” narrative, experts are not looking at the underlying drivers that have contributed to the current environment. There’s not enough focus on the technological innovations, and improved global governance that has contributed to our increasingly positive economic environment.

I have little doubt people are skeptical of a millennial who pontificates on geopolitics, yet you can’t argue with the ongoing positive developments. I am willing to wager my relatively high opinion of Trump further fuels those skeptical opinions. But in the end, that’s just your opinion. The facts continue to support my thesis, at what point will you change yours?

South Korea President Moon Jae-in speaking on inter-Korean talks during his annual New Years speech says "President Trump has supported making a mood to create peace."

On Friday last week, EUR/USD speculators increased their record long position even further. Despite agreeing with it, “the hot money leaving the US” narrative has become so overextended here that I now find myself joining the reluctant dollar bull camp. This is still an opinion and not a position yet, but if we see EURUSD at 1.25 soon or DXY at 87, then it will very likely become one.

And despite whatever doomsday narrative the Democrats are trying to spin, the tax cuts combined with Trump’s deregulation spree have created a much more favorable business environment. Increased investment, rising growth, and a weaker USD should spur growth in the US making capital think twice about leaving the US, at least this year.

This article touches upon what my brother, the Biotech Brain Bug (and others), figured out a little while ago, sunlight is critical to human health. The nobel prize in medicine last year was awarded to the discovery of circadian rhythms which is driven primarily by our daily and seasonal exposure to sunlight. Proper signalling is critical to a well functioning body.

On top of helping with weight loss and fighting cancer sunlight exposure improves mood, and reduces stress and blood pressure. Humans don’t have a lot of hair for a reason. Get some fucking sunlight.

DISCLAIMER: This blog is the diary of a twenty something millennial who has never stepped foot inside a wall street bank. He has not taken an economic or business course since high school (which he is immensely proud of) and has been long gold since 2012 (which he is not so proud of). In short his opinions and experiences make him uniquely unqualified to give advice. This blog post is NOT advice to buy or sell securities. He may have positions in the aforementioned trades/securities. He may change his opinion the instant the post is published. In short, this blog post is pure fiction based loosely in the reality of the ever shifting narrative of the markets. These posts are meant for enjoyment and self reflection and nothing else. So ENJOY and REFLECT!

I read a lot of articles every week (virtue signal much?) and sometimes the overall message of what I read (and tweet) can get lost and cluttered in my brain (and on my twitter feed). So I came up with a brilliant idea (I actually stole it from a load of other people) to share some of the most interesting, overlooked and-

-Sorry that’s a lie. I just want to create a platform for me to share some of my more unconventional and controversial ideas. Each week, I’ll include four or five developments/articles as well as a special bonus link that is sure to be controversial. I would include a trigger warning, but I hate that phrase. The only question that you need to ask yourself is this: Would you like to know more?

1. Hold Your Horses: USD is Still King

The possibility of a shift in China's Treasury purchases got a lot of attention yesterday, probably more than the actual news warranted.

On the other hand, Korea's intervention in the foreign exchange market on Monday did no get the attention it deserved https://t.co/vpYSRaLlwJ

China’s emergence over the next decade will be one of the biggest themes in macro. At times the narrative though will get ahead of itself and other times it will lag behind. In this case it is the former as Brad Setser nails the media’s and twitter’s overreaction to the news that China was considering slowing or halting its purchases of USTs altogether. China hasn’t bought much in the way of USTs lately anyways.

What no one felt like talking about (probably because it didn’t fit into the narrative) was that South Korean officials felt compelled to intervene in the FX markets to weaken their currency versus the USD. As much as people like to talk about the end of the USD’s reign and position for it…

They neglect to say how important it is to the current system of trade. China is certainly working to change that, but perhaps we should wait and see how successful its Yuan denominated oil contract is before making any judgements.

Keeping in the theme of geopolitics, Macron remains a very underrated politician. He has already made great strides to revamp the French system. Continued global growth will help the French people tolerate the much needed reforms. The French dealmaker was in China this week and is also Trump’s key ally in Europe. Watch what he does and where he goes. This man is set to make France play a bigger role in global affairs.

I’m going to keep pounding my fist on the table when it comes to geopolitics. If the Chinese Yuan is going to gain market share in global trade, China will have to expand its sphere of influence. Africa the fastest growing, fastest urbanizing and youngest population on earth is a great place to target. The continent is ripe with resources and opportunity which China is not only taking advantage of but also in this case, is acting as a force for good. In a 2017 Realvision interview, Andrew Nevin argued that for Africa to succeed, its largest city, Lagos, had to succeed. China’s growing investment and presence will be an essential piece to Lagos and Africa’s success.

4. Biotech is off to a great start.

$TGTX$MRTX and $MRUS all announce small China license deals this morning. This is a top theme this year. #JPM18

A trio of Chinese deals (notice a theme yet?) to start the year should help light a fire under M&A which in 2017 hit a paltry 25% 2015’s record. Tax cuts and profit repatriation are expected to further juice M&A action in 2018. On Thursday, $XBI marked its highest daily close since the bubble burst in the summer of 2015. And it even looks like $IBB is about to start out performing the rip roaring Nasdaq.

The fire of technology can burn us. "The seeds that were placed next to the router showed no real growth at all. Some of the seeds could even be observed showing signs of mutation or dying off entirely."https://t.co/whRKxGRRkqpic.twitter.com/HBn690OLkX

It has been (re)discovered that the electromagnetic fields produced from wi-fi routers can harm life processes. In this case, the seeds that were put in a room with two wi-fi routers not only failed to grow but started to mutate. This applies not just to wi-fi routers but all forms of man made or non native EMFs from cell phones to electric motors; any form of electromagnetic radiation life on earth has not encountered on a consistent basis over the last few billion years will cause likely harm. The roll out of 5G and the electrification of our vehicle fleets are global health crises in the making. I don’t have any expectations that these technologies will be fought with any vigor until it’s too late which in the end just gives me yet another reason to be long biotech.

BONUS:

As a pseudo intellectual who constantly opines on things he has no business opining about (macro, geopolitics, biotech etc.) this is the kind of analysis I love most. When you can take simple, well understood and well supported ideas and apply them to entirely different fields it can be truly illuminating. After all who doesn’t like telling experts that they’re wrong. In this case, the authors show that dinosaurs and other historic creatures could not possibly survive under current gravitational forces which leads to some difficult questions about our understanding of the earth’s development and possibly even gravity itself.

DISCLAIMER: This blog is the diary of a twenty something millennial who has never stepped foot inside a wall street bank. He has not taken an economic or business course since high school (which he is immensely proud of) and has been long gold since 2012 (which he is not so proud of). In short his opinions and experiences make him uniquely unqualified to give advice. This blog post is NOT advice to buy or sell securities. He may have positions in the aforementioned trades/securities. He may change his opinion the instant the post is published. In short, this blog post is pure fiction based loosely in the reality of the ever shifting narrative of the markets. These posts are meant for enjoyment and self reflection and nothing else. So ENJOY and REFLECT!

My thesis this year is quite simple, central banks have been and will continue to be overly accommodative, geopolitical risks are low and falling which will continue to provide a wide and clear runway for the ongoing and very underappreciated technological revolution to accelerate and spread. All of this is very bullish for risk assets, particularly ones that are levered plays on a continued global expansion that investors remain highly skeptical of.

In my 54 country / Intl area ETF watchlist, not one ETF was negative in performance last week. That is a full participation and rare. $RSX (Russia) after being the worst Intl performer in '17 was the best performer last week +6.9% pic.twitter.com/wUMnb1d9Eg

World leaders have realized that the path to world domination (and prosperity) is through technology. Maybe this ends badly ala a Terminator style judgement day, but the space race of the 50’s and 60’s led to some pretty wonderful advancements in technology along the way.

The latest in China’s remarkable ambition to master and dominate artificial intelligence by 2020. https://t.co/hPMsaKCm95

But for as much as technological innovation is being under appreciated, ongoing geopolitical developments are being completely misread by investors who are either farming out their all too important geopolitical analysis to the MSM or are too preoccupied with latest Trump tweet (which by the way was purposefully designed to distract you) to muster any semblance of a coherent analysis.

North Korean Leader Kim Jong Un just stated that the “Nuclear Button is on his desk at all times.” Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!

These developments fly in the face of fears that Trump will either launch a major trade war with China, launch a kinetic war with North Korea or be impeached (current oddsmakers have him at an over 50% chance in the next three years). To be clear, this is a massive gap. Massive and with no chance of being resolved anytime soon. So despite bullish positioning, euphoric sentiment and the US economic expansion entering its 9th year, I am and remain bullish on both economic growth and risk assets globally.

Pro tip. When $SPX undergoes 150% quarterly range expansion in the 4th quarter (super-rare) and does another 25% QRE in the first 4 trading days of the year, don't fade that. pic.twitter.com/1MtuzYQGBk

Macro Musing…If the #SP500 closes up today, it will be the 9th time since 1960 that the first four days of year are up. 7 of prior 8 were double digit gains years – w/lone exception of 1987 – which was up 39% before crashing to close year up just 2%.

Perhaps nothing says “risk on” more so than the Nikkei surging +3% in one day to 27 year highs.

For the past 9 years the world’s central banks have been overly accommodative and by all accounts will continue to be so. Sure the Fed is slowly reducing its balance sheet and the ECB and BOJ will very likely tighten policy this year as well but it’s important to recognize that relative to future global economic performance, central banks will remain overly accommodative for the foreseeable future, else they risk popping their own systemic bubble.

“Investors really do understand now that we will be there to prevent serious losses… Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road.” ~ Incoming Fed Chairman Powell in 2012

Do you think Trump would pick this man to come back and pop the stock market bubble he has anointed as his report card?

If you think he’s as dumb as his twitter account suggests then that answer is probably yes.

….to President of the United States (on my first try). I think that would qualify as not smart, but genius….and a very stable genius at that!

Maybe, Powell does pop the bubble. Certainly things have gotten away from central bankers in the past. Actually every time the US 10 year interest rate has been at the top range of this channel, something rather explosive has happened.

Worth noting that five year yields are also near the supposed danger zone.

It’s also been a few years since central banks commitment to financial stability has been tested, and the markets have a habit of testing new Fed Chairs. From Ned Davis Research:

“The median correction in US stocks in the first six months of a new Fed chair (starting Feb 1) is 10%. Yellen’s 3.8% pullback, when she took over from Bernanke in 2014, was the smallest to date as the market expected a smooth transition.”

Anyways, I’ve rambled on long enough. Sorry (not sorry) for discussing politics. You get the point, I’m very bullish but I have one eye on the bond market. Let’s get to what you guys really came for, my 0% prediction accuracy:

1. What is dead may never die. Investors remain woefully under positioned for a continued global expansion. 2018 may not be as good as 2017 but it’s still going to be good enough to pull some left for dead assets back to life. (Shipping, uranium, oil service co’s, high SI shale etc.)

2. US growth positive surprise. The weaker USD combined with tax cuts and millennial might will give the US its best economic growth in the post GFC era.

3. Republicans handily win the 2018 elections. Trump has consolidated his power in the DOJ and FBI and will go after his political enemies sending the Democrats and DNC into disarray and the strong economy won’t hurt either.

4. USD trades sideways. Speculators arrived way too late to take advantage of the first down wave in the USD. They will have to contend with a year of chop much like 2015 before the dollar makes its next move lower. Domestic political turbulence and a hawkish ECB should keep any USD rallies in check.

6. Cryptocurrencies go wild. The combined market cap of cryptocurrencies hits $3 Trillion sparking a temporary spike in energy prices and a sell off in developed market bonds as speculators rush to participate the world’s most obvious example of monetary policy run amok.

7. In regards to future events, I know nothing. This was my most accurate prediction last year, and I wager it will be no different this year.

Super Bowl Prediction: The Battle For Pennsylvania – The Philadelphia Eagles soar over The Poopsburgh Steelers.

DISCLAIMER: This blog is the diary of a twenty something millennial who has never stepped foot inside a wall street bank. He has not taken an economic or business course since high school (which he is immensely proud of) and has been long gold since 2012 (which he is not so proud of). In short his opinions and experiences make him uniquely unqualified to give advice. This blog post is NOT advice to buy or sell securities. He may have positions in the aforementioned trades/securities. He may change his opinion the instant the post is published. In short, this blog post is pure fiction based loosely in the reality of the ever shifting narrative of the markets. These posts are meant for enjoyment and self reflection and nothing else. So ENJOY and REFLECT!